LONDON – Palamon Capital Partners was in the market for four vice presidents to help invest its inaugural fund, the E430 million ($433 million) Palamon European Equity L.P.
Formed in mid-1998 by E. M. Warburg Pincus & Co. alumni Louis Elson and A. Michael Hoffman, the development-capital focused VC outfit spent about a year raising the fund, helped by placement agent Donaldson, Lufkin & Jenrette. The fund held a single close in September.
The investment team includes Partners Miles Cresswell-Turner, Massimo Grasselli and Andrew Hawkins. At press time, Palamon had made offers to two vice-president candidates and was looking for two more, Hawkins said.
The fund will invest in information technology, health care, financial services, data-based media, business services and specialty services.
Hawkins expected one-third of the firm’s deals to come from Southern continental Europe, one-third from the U.K. and one-third from Scandinavia. Despite the wide geographic focus, the entire team will be based in London for the ease of running the firm, Hawkins said.
Palamon will invest in companies before they generate revenues but generally will shy away from seed-stage deals, he added.
The firm intends to make some 20 to 25 deals of theoretically $20 million to $25 million each, but the average investment is a rough figure. Hawkins anticipates Palamon making initial investments of less than $10 million and adding capital to portfolio companies until the firm has $20 million to $40 million in each one.
Palamon intends to be the sole or lead investor in its deals, Hawkins added.
He expects Palamon to exit most of its firms through public offerings, but where companies go public will depend on the type of company. Internet-driven companies are likely to go public on Nasdaq and a domestic exchange. By the end of the year, Nasdaq is slated to come to Europe, he noted, and that could become the “natural home” of Palamon’s IPOs.
Palamon European Equity L.P. is a 10-year fund featuring a 20% carry and a management fee just over 2% that declines in the latter half of the fund’s life, Hawkins said. He said it will take the firm about four years to invest the capital pool.
Raising a first-time fund was “inevitably quite scary,” he said. “First-time funds meet with a series of receptions from potential limited partners, almost all of them hostile.” Most investors would prefer to keep an eye on the firm with the idea of perhaps investing in the sophomore fund, he explained.
Nevertheless, Hoffman and Elson’s Warburg Pincus track records helped the process along. Additionally, while many firms were raising large-scale buyouts funds, Palamon was offering something different, targeting Europe at a time when the “Euro Zone” was becoming a significant market, Hawkins said.
The firm could have raised more money save for a limited partner-imposed maximum fund size, Hawkins added.
He declined to name limited partners, but said they include large U.S. state pensions, insurance companies in the U.S. and Europe and a couple of large investment banks, “a very blue chip bunch of guys.”